Prime time in London

30 October 2009, South China Morning Post

By Richard Warren, Property Supplement

A surge in the capital’s prime central housing market is driven by overseas buyers taking advantage of the weak pound and low prices

A strong recovery in prime central London’s housing market over the past six months has taken even the most optimistic observers by surprise. Prices are now 6 per cent higher in London than in March, figures from estate agency Knight Frank show.

This rise has been helped by a 1.3 per cent increase in September, the company’s latest research reveals.

Overseas investors have flocked to London since the spring when prices were 50 per cent below their late 2007 peak in US dollar terms. Buyers include mainlanders, British expatriates and Chinese buyers from Hong Kong, as well as buyers from other countries in the Asia-Pacific.

“We have seen stabilisation of values probably as far back as March this year, along with increased purchaser activity,” says Peter Murray, a partner at agent King Sturge in London. “A lot of international money is coming into central London, taking advantage of the decline in values and the currency swing.”

Liam Bailey, head of residential research at Knight Frank, says values have risen most strongly in the prime central London districts of Kensington, Chelsea and Notting Hill – up 9 per cent since March.

Price rises have rippled out to other parts of London, including prime areas of Richmond and Islington.

“Prices have done much better than people expected, because there isn’t much stock in the market and buyers have come back because they’ve felt confident, thinking that London’s economy is beginning to turn round,” Bailey says. “The weak pound has encouraged overseas buyers to come back into the market and the feeling that prices were over-discounted in March this year.”

Bailey says half of buyers for properties valued at £2.5 million (HK$27.5 million) or more were from overseas during the summer months. About 4 per cent of all buyers came from Hong Kong and the mainland, he adds. “European, [Middle Eastern] and even American buyers are very prominent. Hong Kong buyers tend to be more noticeable among investment purchasers.”

Murray explains that King Sturge has seen a lot of interest from the Asia-Pacific region recently, not just from Hong Kong.

“This region has consistently been buying UK properties, in good times and bad, and one of the motivators is buying for investment or buying as a base for their children who are studying in London.”

Bailey says that a continuous lack of supply coupled with strong overseas interest will support prices over the next 12 months. After a quiet period in the market during the autumn, he says prices may edge up 5 per cent next year.

“The lack of properties available to buy in the market means it is going to feel quite subdued over next few months. We will have to wait for [next] spring when we are hoping to get more properties back into the market.”

After forecasting a recovery in the prime central London market last spring, Camilla Dell, managing director of buyer agency Black Brick, is uncertain it can be sustained.

Much of the increase in buying activity during the spring and summer was fuelled by the release of pent-up demand from cash-rich Britons living in rented accommodation who want a home of their own, she says.

“We are slightly surprised that the numbers are what they are, that we have had 6 per cent price growth,” she says. “We are hesitant to say this signals a recovery. If we see a lot more supply coming onto the market then we won’t see this level of growth continue.”

She thinks that the national property market may suffer over the next year or so if the economy worsens, but that prime central London’s housing sector may be less affected.

“In the second quarter of 2010, unemployment is expected to peak at 3 million, so we may see price falls,” she says. “But London is a different animal to the rest of Britain. It will always attract international investors and buyers.”

Dell advises buyers not to delay making a purchase in the expectation that prices may fall again.

“If you can find the right property at a good price then it is worth doing,” she says. “Buyers become too obsessed with price. Buying property in London ought to be seen as a long-term thing because it has a proven track record of attracting international investment.”

London’s biggest private landlord, Bruce Ritchie, chief executive of Residential Land, which owns 1,000 homes in London, is confident London’s best addresses will ride out any economic turbulence. He expects investment returns to rise over the next year or two, especially for the best quality homes.

“For a yielding asset the path is only upwards from its current lows,” Ritchie says.

Greenwich Creekside, with close proximity to Canary Wharf and direct links into the city, will be released in Hong Kong shortly by King Sturge.

“It’s a good quality, well specified development in a very good residential area,” Murray explains.

“Apartments will command views of the river, city skyline and Canary Wharf.”

There is a selection of one, two and three bedroom apartments ranging from 500 sqft to 1,500 sqft. “I expect prices will start from about £220,000 for a one-bedroom apartment.”

Big houses on sale include, 23 Cadogan Place, a £26 million city mansion marketed by Savills. This Knightsbridge property has five bedrooms, cinema room, swimming pool, staff accommodation and four terraces.

Islington’s emerging prime market was lifted by the official opening of Highbury Square on September 24. The site, the former Highbury stadium of Arsenal Football Club, was redesigned as 650 apartments and penthouses, and will be completed later this year. Eighty flats remain unsold with prices for a two-bedroom penthouse starting at £995,000. The sales agent is Savills.

In Paultons Square, Chelsea, a four bedroom, two bathroom period townhouse with several reception rooms, home cinema and garden is on the market through Knight Frank for £7.25 million.

At the Barbican in the City of London, former commercial premises have been converted into Frobisher Crescent, a set of 69 apartments, with a three-bed home costing £1.875 million.

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